Indexed Tax Brackets

Thanks to higher inflation in the past year, the 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent tax brackets all kick in at approximately 5 percent higher levels of income than in 2008.

Larger Personal Exemptions

For 2009, each personal exemption you can claim is worth $3,650, up by $150 from 2008.

Higher Standard Deductions

For 2009, the standard deduction for marrieds filing a joint return rises to $11,400, up by $450 from 2008. For single filers, the amount increases to $5,700 in 2009, up by $250 over 2008. And heads of household can claim $8,350 in 2009, a jump of $350 from 2008. Non-itemizers who pay real estate taxes can claim even larger standard deductions: Joint filers can add in up to $1,000 of property taxes paid. Singles can add in up to $500 of real estate tax payments.

Reduction in Itemized Deductions & Personal Exemptions for High-Income Taxpayers

As noted earlier, itemized deductions and personal exemptions are phased out as your income rises. In 2009, the reductions are a bit less painful. The cutback in itemized deductions occurs once your adjusted gross income exceeds $166,800, regardless of your filing status. Your itemized deductions are reduced by 1percent of the amount by which your AGI exceeds $166,800, but you can never lose more than 80 percent of your itemized deductions. Also, your medical expenses, investment interest deduction, deductible gambling losses and any casualty and theft losses are not subject to the cut. Personal exemptions are reduced by 2 percent for each $2,500 of adjusted gross income over $250,200 for married filing jointly, $208,500 for heads of households and $166,800 for singles, but the reduction cannot exceed $1,217 per exemption.

Credit for Residential Energy-Efficient Property

The credit for 30% of the cost of installing solar water heating equipment, photovoltaic or fuel cell equipment, geothermal heat pumps or wind turbines in your primary residence or a second home is no longer limited to $2,000 after 2008.

Credit for Energy-Saving Home Improvements

The tax credit for 10% of the cost of energy saving home improvements returns for 2009. It applies to skylights, windows, outside doors, biomass fuel stoves and high-efficiency furnaces, water heaters and central air conditioners.

Reduction in itemized deductions and personal exemptions for high-income taxpayers

Tax Credit for First-Time Home Buyers

The credit does not apply if you buy a primary residence after June 30, 2009.

Converting a Second Home to a Primary Home

If you convert a second home into a principal residence after 2008, you may not be able to exclude all of your gain. A portion of the gain on a subsequent sale of the home will be ineligible for the home-sale exclusion of up to $500,000, even if the seller meets the two-year-ownership-and-use tests. The portion of the profit that’s subject to tax is based on the ratio of the time after 2008 when the house was a second home or a rental unit to the total time you owned it. So if you have owned a vacation home for 18 years and make it your main residence in 2011 for two years before selling it, only 10% of the gain (two years of non-qualified second home use divided by 20 years of total ownership) is taxed. The rest qualifies for the home-sale exclusion of up to $500,000.

Increased Section 179 Expense Deduction

The maximum amount of equipment placed in service in 2009 that businesses can expense falls to $133,000, a $117,000 decrease from 2008, when a temporary $250,000 ceiling was in effect. The annual investment limit drops to $530,000 for 2009. In 2008, the limit had been temporarily increased to $800,000. Thus, you won't begin to lose the benefit of expensing until you place more than $530,000 of assets in service in 2009.